OECD Lowers South Korea's 2025 Growth Projection to 2.1%

Shipping containers are stacked at a port in Busan in this Sept. 30 photo.

The Organization for Economic Cooperation and Development (OECD) has revised its growth forecast for South Korea's economy, decreasing its 2025 outlook to 2.1 percent, as reported by Seoul's finance ministry on Wednesday.

This adjustment represents a slight decrease of 0.1 percentage points compared to the earlier estimate provided in September. Despite this downgrade, the OECD's prediction is somewhat more optimistic than the recent forecasts issued by both domestic and international economic organizations.

In particular, the OECD's forecast outpaces the International Monetary Fund's (IMF) growth prediction of 2 percent for South Korea, which is the fourth-largest economy in Asia. It also exceeds the Bank of Korea's (BOK) assessment, which anticipates a growth rate of 1.9 percent.

According to the OECD report, strong global demand is expected to bolster South Korea's exports. Furthermore, decreasing interest rates and increasing real wages are projected to stimulate private consumption beginning this year.

The ministry highlighted some significant findings from the OECD: "For 2025, the benchmark interest rate is predicted to dip to 2.5 percent, with inflation expected to return to the target level of 2 percent. In addition, the fiscal deficit, which expanded in 2023 and 2024, is anticipated to partially recover, paving the way for fiscal consolidation."

Currently, South Korea's policy rate is set at 3 percent following the Bank of Korea's implementation of two consecutive rate cuts since October, which reduced the key rate by a total of half a percentage point.

As for consumer prices, a vital indicator of inflation, they have been rising at rates below the BOK's 2 percent target for the third consecutive month as of November.

Amid global economic challenges, the OECD noted significant risks including geopolitical uncertainties, ongoing trade tensions, sluggish growth prospects, and heightened volatility in financial markets while inflation trends are easing.

Furthermore, the OECD provided specific recommendations for South Korea, stressing the urgency for pension reforms to better manage fiscal responsibilities amid rapid population aging. It was also suggested that the country consider integrating more foreign workers into its labor force to address labor shortages.

OECD, Growth, South Korea